Retail

Lingering jitters to mar August pickup in retail sales

Can September make up for lost early back-to-school sales?

By

AndriaCheng

NEW YORK (MarketWatch) -- Retailers look likely to report a pickup in sales for August, driven by back-to-school shopping for apparel and electronics and the addition of sales-tax holidays in states including populous Florida and Illinois.

Still, plenty of worries lurk in the shadows of the forecast headline numbers, and outpacing last year's grim results is not a particularly steep challenge.

The number of consumers rating their personal finances as poor reached a six-month high in August.

Analysts' descriptions of the month have run a narrow spectrum, from "It's going to be ugly" to "A mixed bag" to "Mediocrity remains in focus."

Many cited concerns about a persistently high U.S. unemployment rate, a still-fragile housing market, a volatile stock market, and unusually hot weather on the East Coast that likely led to a pause in spending or delays in purchases of jeans and other fall-weather merchandise.

A Discover U.S. Spending Monitor survey released Wednesday showed that, while more consumers feel the economy is getting better, the number of consumers rating their personal finances as poor reached a six-month high in August.

Retailers from J.C. Penney Co.
JCP, -12.60%
and Kohl's Corp.
KSS, +0.65%
to Aeropostale Inc.
ARO, -28.89%
and American Eagle Outfitters Inc.
AEO, +1.76%
have cut their third-quarter forecasts or made projections that hint at shortfalls versus analyst forecasts. Caution was echoed by retailers across the board.

So far, most eyes are on September as a better gauge of the consumer mood and of the back-to-school selling season, which is viewed as the industry's second-biggest period and a barometer of the holiday season that arrives on its heels. Analysts say more typical weather would also render September a more useful indicator. According to Weather Trends International, August was the hottest in 15 years and driest in four years, denting back-to-school and early fall merchandise sales. Retailers' new focus: What you want to wear now.

"The days leading up to and after Labor Day will be crucial to the season," said BMO Capital Markets analyst Wayne Hood.

He said he's keeping a "watchful eye" on the inventory levels of retailers including J. C. Penney, Nordstrom Inc.
JWN, +0.52%,
Wal-Mart Stores Inc.
WMT, +0.44%
and J. Crew Group Inc.
JCG
after stock prices coming out of the second quarter increased at a faster rate than sales growth. Excess inventory generally leads to profit-eroding discounts.

"August results will not be strong enough to build investor confidence in the consumer," said Deutsche Bank analyst Bill Dreher. "Until we get clarity -- it's an expectations game. Inventory risk builds."

Winners and losers

Overall, retailers are expected to post a 2.8% increase for August, after the 2.3% decline registered in August 2009, according to Retail Metrics. Discounters, excluding Wal-Mart, will likely outpace the field with a 3.7% increase as consumers sought bargains and one-stop shopping, analysts said. Department stores also are expected to outperform, with a 3.2% gain forecast.

As an indicator of how sales may have turned out, MasterCard Advisors' SpendingPulse, which estimates total U.S. retail sales across all payment types, including cards, cash and checks, said Wednesday that sales trends for August have leaned more toward "remaining stable and flat rather than towards growth."

Consumer electronics rose 2.3%, while the appliances category jumped 9.4%, the MasterCard data indicated. While those categories have been helped by back-to-school shopping, the data showed some clothing spending could be pushed into September as parents delayed buying cooler-weather merchandise until the weather itself grows cooler.

The MasterCard data also showed the luxury sector's momentum may be slowing, affected by the stubbornly volatile financial markets. Luxury sales declined in August, the second drop in nine months, MasterCard said.

J.P. Morgan analyst Charles Grom on Wednesday cut his rating on Saks in part because of a concern that volatility in the equity markets and any Wall Street payroll cutbacks would hurt demand from high-end shoppers.

Even online sales growth has seen a slowdown. MasterCard said August's 7.2% growth was the slowest this year.

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